by Dr Eamonn Butler, Director of the Adam Smith Institute (September 25, 2008)
The archbishop's criticism of the markets is misplaced; it's governments and regulators that are responsible
I was beginning to like Dr John Sentamu, the Archbishop of York, who seems to have solid views on issues like Robert Mugabe and political correctness. So it's disappointing that he's fallen for the politically correct line on the markets crisis, calling share traders who cashed in on falling prices "bank robbers and asset strippers".
Then, in a pincer-movement of stupidity, I see the Archbishop of Canterbury, Dr Rowan Williams, giving Spectator readers his views about banking regulation. Well I've got a few theories of my own about how Christ fed the 5000, but I don't publish them in the media because I figure lots of people know more about it than me. And the men in mitres should know better than to proclaim such superficial – and wrong – views on finance.
Sentamu told bankers that the financial market "seems to have taken its rules of trade from Alice in Wonderland", and of course he's right. But it's the monetary and regulatory authorities who set these rules, not the players. You've had the Fed dishing out money and credit for the past dozen years, slashing interest rates from over 6% to just 1% as it tried to stave off the alarm of 9/11, the dotcom crash, bird flu, the Russian default, and much else. You've had a British government that's been spending wildly beyond its means. And a regulatory regime so inept that it allows banks to turn one pound of deposits into 10 pounds worth of loans, and then lets other funds ratchet that up even more. It's been a Mad Hatter's tea party right enough, but it's been the authorities who've been inhaling the mercury.
"To a bystander like me", said Sentamu, "those who made £190m deliberately underselling the shares of HBOS … and drove it into the arms of Lloyds TSB, are clearly bank robbers and asset strippers". And in the same vein, Williams backed the curb on short-selling.
That's maybe just how it seems to the uninformed. But short-selling is a risky business. If a £1 stock falls to zero, you make £1. If it rises to £100, you lose a fortune. You need to be thoroughly clued up about the company you are shorting. Short-selling is actually a valuable signal that something is wrong with a company – and that managers or regulators should take action.
When Pakistan banned short-selling back in July, it halted the market's downward drift for a couple of days but had no long-term impact. Nor will ours. It's so easy for pious folk to see a problem and say that more regulation is the answer. Maybe smarter regulation is the answer. But the real bank robbers, who've dipped into our pensions and savings and given the world a decade-long party from which we're now suffering the hangover, are those who were supposed to be controlling this market, not those inside it.
Published in The Guardian here